How To Research Futures Trades

Ask any successful trader the importance of research and you’ll start to realise just what you’re up against when it comes to trading the markets. Most beginners haven’t got a clue what they’re doing – even those who understand how the markets work – and so it’s really no surprise that they are incapable of trading successfully. Without research, futures trading (as with any other form of investment) is simply gambling and hopeful thinking.

Sure, you might bag a lucky profit or two, but eventually when your luck falls away and you’re left staring down the barrel of logic and reason, this kind of approach is the fastest and most effective way to lose all of your trading capital.

Being in the right place at the right time is central to futures trading success, and the only way in which you can ensure you’re on top of the markets as you progress through your trading career is to make sure you’re fully up to speed with the world markets, the global economic climate and industry/asset specific factors that are likely to contribute to trading prices. In a nutshell, being researched and well-read is a vital stepping stone, and indeed a prerequisite for trading success.

While that should (hopefully) seem obvious, knowing just where and how to research positions is a little more abstract, and for beginners especially, it is important to divide your time equally between different strands and methods of research. Broadly speaking, there are three main research areas you should explore in order to find out the best futures positions for you.

Technical Analysis

For non-trading types, technical analysis seems like a daunting prospect, with so many numbers, graphs and charts to interpret to output data in some useful form or other. For the uninitiated, technical analysis is the process of analysing data in order to determine trends and potential future price movements. While you might wish to steer clear of technical analysis and the perceived mind-bending difficulties it can present, learning how to master the basics can be of significant importance in developing a workable, efficient and successful trading style.

When analysing an instrument’s technical performance, the core factors you are looking to establish are the relative high and low price points, the trajectory of current trading, and the response of the market to similar circumstances in the past (where applicable). While you won’t get any answers as to whether to invest directly from analysing the data, what you will learn is vital for helping you make the decision as to whether and how best to invest in the futures contract at hand.

Technical analysis tools tend to be bundled in with your futures broker’s online platform, and using these usually free resources is virtually essential for successful trading. For that reason, it’s recommended that you start becoming familiar with the applications, charts and data that you can access, alongside learning how to manipulate that data within your platform to produce clear and logical trading options.

Financial Media and Current Affairs

The next key piece of the research puzzle lies in the realms of the financial press, and in keeping up to date with current affairs, economic indicators and general worldly goings on. As a futures trader, nothing can be allowed to pass you by, and the more thoroughly you research your positions, the more likely you are to be able to avoid the basic mistakes and fallacies that often claim the scalps of new and inexperienced traders.

At a foundational level, it’s vital to understand that everything is interrelated when it comes to investing, and the markets never operate in a vacuum. That’s why even well-performing instruments can be turned on their head by an economic announcement, without additional warning or signal. As a futures trader looking to command the best and most profitable positions, keeping on top of financial, market and global goings on is of paramount importance in choosing long-term trading options with the potential to deliver a worthwhile profit.

Forums and Futures Chat Rooms

This last one might seem a little strange, and certainly a lot less formal than the preceding two areas, but it can be a great way for beginners to pick up on vital trading information. One of the problems even well-researched traders encounter is research blackouts. This phenomenon is perhaps best explained in an example.

Imagine you are involved in the oil futures markets, and you think oil prices over the short term are likely to slow down as a result of dwindling demand caused by the global recession. All the price data points towards shorting oil futures over the coming two to three months, and you opt to execute the trade, believing that you’ve made a good, logical decision. The decision is well-researched, and you’ve spent time and energy in reaching this conclusion on the basis of detailed technical analysis and market information.

The next day, a civil war breaks out in a major oil producing nation, sparking fears of unstable supply and resulting in strong demand for oil today in order to guard against potential uncertainty and disruption. While the civil war was foreseeable yesterday, the trader in the example has fallen foul of a research black-out, and simply wasn’t aware of the likelihood for conflict when executing the trade. This isn’t a failing of research, but just unlucky – there are potentially thousands of variables that can play in to market pricing, and you need to make sure you understand the main ones and what impact they are likely to have.

In this vein, spending some of your time in forums and futures chat rooms is time well spent, and it serves to both reinforce your research work and also could possibly lead to the discovery of highly useful trading information you’d previously overlooked. By doing your research work within forums and chat facilities, you’re effectively giving yourself the advantages of office-based traders, who have the benefit of colleagues to cover all the necessary ground.

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